Monday's Options Recap

Sentiment

Morning trading was sluggish Monday, but the major averages battled back from modest early losses and are trading a bit higher late in the day. With no economic data to guide morning trading, some of the focus was on overseas markets.

Benchmarks were broadly lower across the Asia/Pacific on concerns about an escalating trade war between the US and China. The US imposed tariffs on Chinese made tires. China is opening an anti-dumping investigation related to auto and poultry products. Hong Kong's Hang Seng lost 1 percent and Japan's Nikkei sank 2.2 percent. Major averages were broadly lower across Europe as well.

Consequently, the Dow Jones Industrial Average opened lower in slow trading. However, the decline never gathered any real momentum. Instead, the major averages were mixed midday and then higher heading into the final hour.

The Dow Jones Industrial Average is up 15 and the NASDAQ has added 8. The CBOE Volatility Index (.VIX) hit a morning high of 25.39, but was recently down .11 to 24.40. Trading in the options market is on the light side. Approximately 4.6 million puts and 5.8 million calls traded so far (a ratio of .79, compared to a 22-day average of .83.)

Bullish Flow

Gamestop (GME) is up 84 cents to $25.54 and 14K calls traded, or more than 10X the number of puts. Trading is brisk in Sep 25, Sep 26, Sep 27, Oct 27, and Oct 29 calls and sentiment based on the total order flow is 65 percent bullish. Briefing reports that Best Buy (BBY) is possibly eyeing GME. Implied vols (average) is moving up to about 45, from about 43.5 late Friday.

Calls on Dryships (DRYS) are being bought for the third time in four trading days. Shares are up another 32 cents to $7.08 and 51K calls traded, or almost 10X the number of puts. Oct 7 and Sep 7.5 calls are leading the flow, with more than 14K traded in both contracts and about 70 percent hitting ask-side. Implied volatility is up to 77, from 76 yesterday and 71 a week ago.

Bearish Flow

Hudson City Bancorp (HCBK) is down 29 cents to $13 and options volume is running 2X the average daily on increasing interest in Sep 12.5 puts. 3400 traded, 94 percent hit ask-side and open interest is 2,557. ISEE data is consistent with opening customer put buyers (90 percent = 1959 contracts), as it appears some investors fear HCBK might slide before the weekend. Implied volatility (average) is up about 2 points to 37.5. No headlines on the bank. Earnings were last reported on July 21.

Implied Volatility Movers

Human Genome Sciences (HGSI) is higher after renewed takeover speculation made the rounds Monday. Shares are up $1.20, or 6.24 percent, to $20.42 and 27,000 calls traded, compared to 4,800 puts. Meanwhile, implied volatility has moved to 88, from about 85 late Friday.

Implied volatility is also higher in Dendreon (DNDN), Etrade (ETFC), and Focus Media (FMCN). Meanwhile, implied volatility is lower in Sycamore Networks (SCMR), Wells Fargo (WFC), and Auxillium Pharmaceuticals (AUXL).